Accounting Best Practices, Fifth Edition

17–16. Transfer Payroll to Debit Cards

Some companies employ people who, for whatever reason, either are unable to set up personal bank accounts or do not choose to. In these cases, they must take their paychecks to a check-cashing service, which charges them a high fee to convert the check into cash. Also, employees will be carrying large amounts of cash just after cashing their checks, which increases their risk of theft. They also run the risk of losing their paychecks prior to cashing them. Thus, the lack of a bank account poses serious problems for a company’s employees.

A good solution to this problem is to set up a payroll debit card for any employees requesting one, and then shift payroll funds directly into the card. This allows employees to pull any amount of cash they need from an ATM, rather than the entire amount at one time from a check-cashing service. The card can also be used like a credit card, so there is little need to make purchases with cash. Further, the fee to convert to cash at an ATM is much lower than the fee charged by a check-cashing service. There is also less risk of theft through the card, since it is protected by a personal identification number (PIN). Employees will also receive a monthly statement showing their account activity, which they can use to get a better idea of their spending habits.

Payroll cards are superior to direct deposit in the following respects:

• First payment is electronic. When paying an employee through direct deposit, the ...